Regardless of the ongoing debates over the financial wisdom of doing so, the fact remains that Buy Now Pay Later (BNPL) services have gained immense traction in Australia. They’ve significantly changed how people shop and pay as more Australians are turning to BNPL, even for necessities.
Fueled by the surge, Zip (ASX: ZIP) has revealed historical achievements in FY23, primarily driven by substantial rise in group revenue by 16.1% year-on-year (YoY) hitting $693.2 million. The volume of transactions reached a new peak at $8.9 billion, marking a 7% YoY increase.
Zip managed to grow its merchant numbers across USA and ANZ operations by 11.2% YoY to 72.3k merchants thanks to a strong rollout of enterprise merchants, including eBay AU, Webjet, Jetstar, Uber, Peloton, HP and Hoyts. Active customer numbers, however, went down by 3.5% You to 6.2 million. Zip attributed this to adjustment of their underwriting standards across all the countries it operates in.
The Company reported an EBITDA loss of $48.2m, but this was still an improvement on the EBITDA loss of $151.4m in FY22.
Commenting on the results and achievements, Zip Group CEO Cynthia Scott said, “We achieved this against a backdrop of rising interest rates and inflationary conditions, demonstrating the resilience and increasing relevance of our product offering to our customers and merchants.”
Scott further elaborated that Zip is uniquely positioned in the market by being EBITDA positive and with business practices aligned to the Government’s proposed BNPL regulatory framework – including having held an Australian Credit Licence for 10 years and conducting full ID, credit and affordability checks on customers.
While the current high-interest rate environment has benefited Zip, it is also a double-edged sword. Financial pressure on consumers has hindered their ability to repay their BNPL loans, therefore like all BNPL providers, Zip also struggles with bad customer repayments and debt write-offs. They have managed to decrease bad debts by 33.9% in FY23 to $170.2m compared to $257.7m in FY22. Excluding the expected credit loss provision changes, net bad debts written off amounted to 2.0% of Underlying Volumes compared to 2.7% YoY, in line with Zip’s goal of staying under 2.0%.
According to ZIP’s customer payment policies, if a customer’s payment is 90 days overdue for line of credit products or 42 days overdue for instalment products, or if it’s clear they won’t fully repay, it’s considered a default. Unpaid balances for over 180 days for line of credit or 84 days for instalment products are written off, following industry practice. Instalment products usually have short repayment times, about 42 days.
Writing off debt can be more cost-effective for BNPL providers than legal action. Lawsuits entail high expenses (legal fees, court costs) that might not make sense for smaller debts. Debt write-offs balance recovery costs with potential gains, especially when legal action might yield limited returns or harm customer relationships.
The Company reported a Net Loss After Tax (NLAT) of $204.7m versus $187.4m reported in FY22m, and had $57.3m available cash and liquidity as of 30 June 2023.
During the year, Zip conducted a strategic evaluation to prioritise growth in key markets and expedite profitability. These actions involved streamlining product offerings, enhancing portfolio performance, simplifying operations, optimising global costs, and boosting efficiency. As part of this effort, Zip exited operations in Mexico, Singapore, and the UK, and divested businesses in several other countries. Around 43% of Australians have used a BNPL service within the last six months, according to data from May 2023. The peak adoption of BNPL was recorded in July 2022 at 49%, but it has since returned to its usual levels. The adoption of BNPL payments in Australia is projected to experience consistent expansion to hit US$23.93b in Gross Merchandise Value by 2028.
Clara is a Business Reporter for The Sentiment.
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